Pursuing legal matters can be very costly and time-consuming for any business. Small businesses are particularly reluctant to employ lawyers to handle their legal issues, mainly due to perceptions of them being expensive.
However, according to a YouGov survey, failing to seek legal advice costs small and medium-sized enterprises (SMEs) £13.6 billion a year in additional costs to resolve disputes and subsequent legal complications. In most cases, those costs could have been avoided had early professional legal advice been obtained, highlighting the value that expert legal advice can add to your business.
Access to Legal Support for SMEs
SMEs – defined by the EU as a business with less than 250 employees and turnover of less than €50m or a balance sheet total of less than €43m – are in many ways, the foundation of the UK economy. They account for 99% of all UK businesses, 60% of jobs and about half of private sector turnover. Yet they often don’t have basic documentation, such as a shareholders’ agreement, in place and face challenges in asserting their legal rights, especially concerning debt collection and late payments.
Research conducted by the Legal Services Board (LSB) in 2021 revealed that one-third of SMEs experience a legal issue. The most common concerns were around trading, non-payments and late payments, followed by regulation, employment and tax. The economic downturn and high-interest rates have put further pressure on cash flow, meaning that the number of late payments and customer complaints (sometimes to avoid or delay payment) has increased.
Despite this, only a quarter of the respondents to the LSB survey consulted a law firm to help with their legal issues, and around half of those surveyed sought to resolve them alone or took no action at all. Most of the businesses were more likely to have consulted accountants, trade bodies, and financial or tax advisors than solicitors.
So, why are they failing to seek legal support?
Why are SMEs Not Accessing Legal Support?
Often many SMEs do not identify business issues as legal problems and even when they do, the main reason they don’t seek professional legal advice is cost.
Many businesses, unfortunately, view the legal system as unaffordable and expensive. For example, even when a business has a strong case, it may feel there is little difference between the value of a dispute and the cost of resolving it. As a result, the business takes the view that it might as well absorb the cost of the dispute rather than pursue a claim. However, this does not have to be the case and a failure to pursue such claims means there is a risk that the issue may continue.
The complexity and time-consuming nature of bringing a claim is another reason SMEs are often adverse to pursuing legal claims. While the HM Courts & Tribunals Service online portal and helplines allow claims to be filed online and ensure that cases get to court quicker, the Covid-19 pandemic has caused a considerable backlog of cases, slowing down the system.
The Value of Professional Legal Service
While cost is naturally a concern for SMEs, especially in the current economic climate, there are several benefits to investing in legal advice to resolve issues within your business.
SMEs need to have a legal support strategy prepared so that if the worse does occur, they are aware of what measures to take and which questions to ask. Early legal advice will allow you to anticipate and proactively eliminate any risks and threats that, if not addressed, may cause significant disruption to the business, thus saving you money in the long run. Professionally drafted documentation and terms and conditions that are appropriately worded can save you a fortune in legal fees and lost revenue if payment terms and risk of liability are both properly covered.
Proactive legal advice to support the business on a day-to-day basis, on issues such as contracts for new members of staff or the introduction of new legislation, also gives you peace of mind that there shouldn’t be any nasty (and potentially costly) surprises in the future.
Saving Money on Legal Fees
If you have limited resources for legal fees, the best thing is to identify which areas are the most important to protect. That way you can spend money on the business-critical areas.
Explore funding options such as Conditional Fee Agreements (commonly known as ‘no win no fee’), Third-Party Funding and After the Event Insurance. Alternatively, some of your legal costs may be covered by insurance already taken out to protect your business, including insurance of your contractual liabilities, property assets and directors’ liability. Your private Before the Event insurance (home, travel, car, and bank) may also cover some costs. People are often unaware that they have an insurance policy in place that includes cover for legal expenses so it is worthwhile checking with your insurer if you are unsure.
How We Can Help
Here at Witan Solicitors, we understand businesses and have vast experience in supporting SMEs and providing our clients with clear, pragmatic and relevant advice. We also offer efficient and cost-effective solutions that are tailored to your business needs.
We don’t assume that all of our clients have pots of money – lots of them don’t – and therefore we offer a variety of alternative legal funding methods, intending to help as many people as possible. You can read about our different funding arrangements here. If you are an SME looking to assert your legal rights or simply want to make sure you are compliant with the law, therefore protecting your business and saving money in the long run, email us to arrange an initial, no-obligation consultation.
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